John
Williams, Fed President and one of the three Vice Chairs of the Fed
and a notable person in key policy changes said that he was satisfied
with the current interest rates in the US and that he sees no reason
why the rates have to be increased unless there is a swing in
inflation or economic growth. Speaking at an interview on Tuesday, he
said that the interest rates are at a ‘neutral level’ with
respect to growth, inflation and current employment growth. The Fed
President has also estimated that the Federal Reserve will continue
to reduce its bond portfolio even in the coming year.

When
asked if it would come as a shock if the rates increase, He said ‘I
don’t think that it would take a big change, but it would be a
different outlook either for growth or inflation to return to hiking
rates. The Fed could also keep levels of bank reserves on its books
that are far closer to current levels than previously thought’.

A
few weeks earlier, the US Central bank had paused the quarterly
interest rates hikes, and William’s remarks undermine the tightened
level of monetary policy. It also suggests that there may not be any
more hikes in the near future. Apart from the pause in rate hikes,
the policymakers are finding ways to reduce their balance sheets. The
balance sheet includes the holdings of bank reserves. Williams in
that interview estimated that the roll-off of the balance sheet could
end if the bank reserves can be raised to a $1 trillion or more which
is about $600 billion less than the present level. He said ‘the
figure is a guess today of the number of reserves that will be held
in the system in the future- but again we are learning and will get a
finer touch on that.’ The Fed President who is also the vice
chairman of the Federal Open Market Committee said that the
policymakers are ‘in a very good place’ as the rates are neutral
and the US economy is growing.

The
comment means that the run-off is likely to happen even in the coming
year at the current rate. A few more Fed policymakers have also
indicated that the Fed can stop making policy changes which is a
welcome sign for investors.

In
reaction to the remarks made by Williams, the stocks gained on
Tuesday afternoon with the S&P 500 increasing by 0.15%, but the
US treasury bond’s yield fell. The benchmark 10-year notes reduced
by 2.64% from 2.68%.

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